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Are regional free trade agreements effective?

January 15, 2007


Everywhere you turn, countries are entering into regional free trade agreements – 120 new pacts in the last 15 years alone.

But are they effective?

The rise of regional free trade agreements is dramatically altering the structure of the world trading system. But as world policymakers enter into more of these trade agreements, do they really know whether these pacts are effective and generate more trade – or not?

Finance Professor Jeff Bergstrand aims to find out. With a three-year grant from the National Science foundation, Bergstrand and a colleague are analyzing the economic results of regional free trade agreements worldwide and building a systematic empirical trade model to predict which agreements will be beneficial in the future.

So far, Bergstrand has found that free trade agreements entered into before 1990 have had a doubling effect on trade-increasing trade by 100% over 15 years. But these findings may not hold true for more recent agreements. Policymakers are advised to stay tuned.